Myths That Keep You Broke #1
Myth #1 - Pay your Debts First:
Do you believe that you must pay down your debts before you start to invest? It doesn’t matter if I am talking about credit cards, car loans, or mortgages.
This is the first in a series of 32 email and blog posts where I will uncover the many myths that too many people believe. These myths can prevent you from creating wealth and financial freedom. Let’s start destroying them.
You might not believe all of the myths that I’ll write about, but I am sure you believe some of them. And in my mind the first one is the most dangerous myth of all. It is the idea that your creditors are more important than you are.
You might believe that to be financially free you first need to be debt free, and that is 100% completely, ridiculously and harmfully wrong. Studies, examples, and my personal experience prove it is wrong, and here is why:
As a responsible person you feel an obligation to pay your debts, and creditors take advantage of that through their advertising and marketing. As one example; banks will run contests where the more often you use your credit card the more entries you will have toward some contest where the winner will have their balance paid in full. Everyone else will be stuck paying off their balance over time and the bank collects millions of dollars in interest. You become a wage slave to your creditors.
Only about half of the people who use credit cards can pay the balance in full each month. When the other half get the balances paid off, they return in short order, and they are on the same roller coaster ride again for the rest of their life. They never start to save and invest.
About 95% of those who pay off their debts with money from an inheritance, lawsuit settlement, tax refund, consolidation loan, family loan, or any quick and easy method, have the debts build up again within 12 months.
What you need to do – instead of focusing on becoming debt free – is to begin to save and invest toward creating financial freedom. What you must do is to pay yourself first, before anyone and anything else.
For about 100 years, the book, The Richest Man In Babylon, says, to pay yourself first, 10% of what you earn. That concept will still be working when you and I are dust.
That is what I did when I found myself broke at age 50 and had to start all over again. I was not earning a lot of money, only about $5000 per month. I made the minimum payments on my credit cards to keep a good FICO score and about six years later the earnings from my investments were enough to pay the credit card balances in full each month.
In the most recent version of my Wealth On Any Income book on page 141, I have a chart that shows just a two year delay to pay off a $6000 debt, can cost you almost $200,000 in lost investment earnings down the road. That is a really bad trade off.
Forget about what Dave Ramsey, Suze Orman or your CPA says about paying off your credit cards first. Is your CPA a multi-millionaire who does not have to work for a living?
You need to create your savings and investment plan first, and pay your consumer debts later.
To Your Prosperity,
Rennie