Episode 5: Grow Your Net Worth or Pay Down Your Debt – Transcript
Hi, Folks. Welcome to Episode Five of the Wealth On Any Income Podcast.
This episode is about whether you Grow Your Net Worth, or Pay Down Your Debt. And I'll explain why you need to focus on creating a net worth that will give you Complete Financial Choice® before you focus on paying off your debts. This episode is about four minutes long.
As a reminder, I felt there were only about 15 years to fund my retirement. Again, while I no longer use the word 'retire', what you need to think about is creating Complete Financial Choice® in your life regardless of your age.
In my gut, I understood that I had to build a net worth, even though I had thousands of dollars worth of credit card debt. So what I did was I used a concept that's 5000-years-old called, 'Pay Yourself First', and it's something we spoke about in an earlier podcast.
In my Wealth On Any Income Book, I have a chart that shows if you focus on eliminating a $6,000 debt before you begin to invest, it can cost you about $200,000 in lost investment earnings over a 30 year time frame. And that's only if you're investing $300 a month, or $10 a day. Wouldn't you agree that giving up $200,000 to get rid of a $6,000 debt is not a wise thing to do?
Well, I felt this in my gut, while I put this down in my book, I was still haunted by carrying the debt while I was saving and investing. However, after a few years, I was able to see and feel the wisdom of this approach. After about three or four years - I don't remember exactly when - the income from the apartment buildings we were buying was able to provide some extra income to pay down the credit card debt. In a few more years. I was able to pay off my credit card balances in full every month with the income from our investments, I will admit it was an emotional - and sometimes financial - struggle in the early years of investing. But the payoff has been huge. It does not matter if a credit card bill comes in at $2,000 or $20,000, it gets paid off in full when the bill arrives.
There is no way I would be in this situation, if I focused on paying off debt instead of building my net worth. And what I've seen over and over again, is that someone will pay down their credit card debt, and something new comes along and the balance jumps up again. This happens repeatedly, and they never even start to save and invest. They spend their working life just paying down debts, and never build a net worth that would allow them to choose to work, or choose not to work.
My approach will work the same way for you too, if you commit to the process. And here's your opportunity to grow. Determine the amount of money you'll pay yourself first with and only make the minimum payments on your credit cards. Shift the balances to zero or low rate cards while you do this. Accept that the feelings will be tough to deal with and you will want to return to your old way of doing things - but don't do that.
Have a great week until we meet again. Bye bye.
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