You see all the I paid off all my debt posts and you too are determined to become debt free this year. Now before you sell all the items you own and use every dime you have to throw at your debt I have an important message to keep in mind while you’re on your debt-free journey.
before I get into that, I would request to download my free guide on getting unstuck, addressing your inner money mindset so you can start moving forward in your finances.
I was reading an article this morning on CNBC.com, and they talked about how what consumers want most in 2020 is a debt-free life. That’s right; everyone wants to have a debt-free life in 2020. But on our road to debt freedom, there are some critical mistakes. But there’s one critical mistake that I see so many people making, and I just wanted to address that in this blog post.
What is a debt-free journey?
Debt-free living means saving up resources or more especially money. It means making sacrifices and resisting impulse purchases. It means limiting the amount of money you waste each month. It means planning for the bigger purchases and making sure that you are using your money for the things that matter most to you.
A new survey finds that 84% of individuals would rather save $5,000 than shed 5 pounds, and many respondents said they regret taking on new or existing debts from this year recently.
The sacrifices people are making to have a debt-free story
I went to a wedding and I met one guy, and he was talking about his finances and all the sacrifices that he’s been making. He used to live in a fancy apartment, then he downgraded and got some roommates, so he was able to save money there to put towards his debt. He started bringing his lunch to work to save money..
He was living very frugally so that he can actually reach his goal of being debt-free. Now his debt-free goal is going to take some time, maybe four or five years. He has stopped his 401k payments completely, and was just going to use all of that money to put towards his debt. He told me he was following Dave Ramsey’s baby steps, which says that you should pay off all of your debt before you start investing.
And I love Dave Ramsey; however, you have to make sure that you are also thinking and really taking into account the actions of your choices.
Mistakes to avoid to live debt-free
I don’t believe that you should avoid investing while you’re on your debt free journey. Putting every single dime towards your debt, what if you’re not debt-free for another five years? What if you’re not debt free for another ten years and you’re putting all of this money into your debt, but you’re not really growing your assets, you’re not really building your wealth, because all of your money is just going to this debt.
This means that you may reach your goal of being debt free, but your net worth will be very low. Now you have to build up, take time, years to build up your assets, and you miss out on all that time that your money could have been growing in the market.
The earlier you start investing the better because your money has more time to grow. If you did not invest because of your debt, you missed out on compound interest, which is your money like racks and racks and racks and growing and growing and growing, interest on interest. You’ve missed all that because you are so focused on this goal of being debt-free. And when I was personally paying off of my student loan debt, I made sure that there were periods where I was investing first, and then I was investing a little bit less, so I can put more money towards my debt.
My Debt Free Journey
On my debt free journey I never eliminated investing entirely, and that’s why I was able to pay off my debt, and still have a positive net worth, because investing was an important part of that. Now I know some people like Candice if I just focus on this one goal at a time, if I just put all my money towards my debt and then I can focus on putting all that money towards investments, that’s what’s best for me, that might be you. But I’m just saying that you could be missing out on your money growing, the younger you are, the younger you start investing.
The younger you start investing, the better it is
I don’t recommend you putting every single thing towards your debt so that you can be debt-free and then investing later on, because it’s like you’re kind of behind. You are behind because you’ve missed out on all these years somebody could be growing. And that’s what I wanted to say today, make sure you guys are not making this critical mistake that I see so many people making.
I know sometimes we too just become so obsessed with being debt-free, but there’s more to life than being debt-free. It’s like we have to focus on our net worth and what we’re worth financially. And yes, paying down, that does help your net worth grow, but what also helps your net worth growth is investments, is your savings, is making sure that you don’t leave these things behind.
Not building savings while paying off your debt is dangerous
Another issue with putting every single dime towards your debt is that some people are neglecting their savings altogether as well.
If you don’t have savings to fall back on, now you’re debt-free, but now you don’t have any assets, now you don’t have any savings, something happens and now what do you do? If you suddenly need new tires or have to get a root canal? Now you have to swipe your credit card, and now you’re back to being in debt. So I’m not sure if the goal necessarily should be to be just entirely debt-free.I think the goal should be to grow our net worth and ourselves.
Let’s focus on growing our net worth rather than just being debt-free
In my 12-month Finances Planner Hero In Your Finances, I have a monthly net worth tracking sheet. Tracking your net worth is very important.
Sometimes you’re going to have to invest in yourself, sometimes that investment is going to include debt, but you shouldn’t feel down. I personally do plan on investing in rental properties, I invest in my business, I invest in coaching, I invest in courses, and I just invest in myself, and so I don’t see that as a disadvantage. As long as I am investing in myself, and I’m going to get that returns, I’m going to get that money back. It’s going to be the compound interest on myself, and I’m going to be able to grow my net worth, grow myself, and so I think that should be the focus.
I know we all want to be debt-free so bad, but I think that the goal should be to just grow our assets, grow ourselves, and invest in ourselves. And you know what as time goes on, the debt will go down. But you know what else would also happen, your net worth and your assets will continue to grow and will continue to increase.