It’s impossible to have financial freedom if you’re in debt. Debt is the number one enemy of financial freedom. As long as you owe a person/institution money, you cannot claim that all of the cash you hoard is yours. A part of it belongs to your creditors.
I had $40,000 in debt when I was homeless. Lawyers used to hound me every day, threatening lawsuits, garnishes and blacklistings. I would sometimes spend more than an hour a day on the phone with them making arrangements to pay my debts at a later date.
Once I started receiving money, I paid off my car first and then tackled the small debt. My biggest debt, which I paid last, was a personal loan I took out to fund the opening of my nightclub. I remember that day well. After I completed the transfer, I felt like chains had lifted from my neck. I was breathing easier and felt a lighter load on my shoulders. The dread of receiving threatening calls from lawyers and the banks had vanished.
One of the greatest feelings I experienced was financial freedom. It’s empowering to know that I don’t owe anyone a cent, and I’ll never get into debt again because it’s financially and mentally crippling. Being in debt causes so much headaches and can lead to divorce and other personal problems.
If you don’t have debt, congratulations. You’re ten steps ahead of most households, which are drowning in debt. Don’t be one of them. It’s not worth it.
But you may want to study, open a business and eventually buy a house. How do you avoid debt and still accomplish everything you want?
Avoiding Debt is a Marathon, Not a Sprint
What do I mean by this?
Most of us seek instant gratification. We want what we want right now. There’s no time to wait. What are we waiting for, right? Well, that’s one of the biggest reasons that people get into debt—they can’t wait.
Some people see an item online or in a store, and they just have to have it, even though they don’t have the money for it. So, how do they buy it? Credit card.
Many of us are obsessed with driving a nice car. We feel that we studied and worked hard to reach a certain point professionally and deserve to be rewarded. But we can’t, yet, afford that nice car, so we take out vehicle finance.
Student loans are a major problem for people globally but especially in the U.S. Student loan debt in the U.S., at the time of writing, is at a whopping $1.77 trillion.
What’s the solution? How do you not become one of the creditors for vehicle, credit card and student debt? You delay gratification. That means you wait until you have the cash to buy it. I know, earth-shattering information, right?
I know what you’re thinking: My studies could easily cost $50,000 and that car I want is, at least, $30,000. How am I supposed to save up that much money?
You need to buy time. The more time you have, the more money you can save. That means delaying buying the car of your dreams. It may take you five or eight years to eventually buy it. But when you do, you’re going to enjoy it even more because you, not the bank, will own it. You’ll also appreciate the car because you worked hard to save up that money. There’s no real satisfaction in getting vehicle finance.
If you think that five years is a long time to wait before you can own a vehicle, just keep in mind that if you take out vehicle finance, it’s going to be, at least, five years until you pay off the vehicle. But there is no guarantee that you’re going to have an income for the next five years, but debt needs to be paid back.
Instead of taking out vehicle finance for your dream car, buy a used vehicle for $3,000 and use it until you’ve saved cash for the car you really want. Toyota and Honda have reliable used vehicles that will get you around in that price range.
Otherwise, use public transportation while saving up for your dream car. I know it’s not ideal to be in a congested bus or train. But stick it out. It will be worth it when you can afford a car for cash. Just imagine the feeling of driving in your dream car past the bus you used to take, knowing the car belongs to you and no one can take it away from you.
Avoiding student loans
How are you supposed to get ahead in life if you don’t have an education? It’s tough. But not all education costs money. In some cases, you can be paid while being educated. Instead of enrolling in a university, seek an internship.
When I graduated with a finance degree, most companies I applied to for a job also wanted me to have experience. How the heck was I supposed to have experience while studying? These days, many companies value experience over education.
I have two finance degrees, and I can tell you that university taught me very little about real-world finance. I learned almost everything about finance on the job.
Instead of paying to study computer science, proposition a computer company to provide your services for free for the first three months while you get on-the-job training. There’s nothing more that companies love than free labour. But that’s not enough. You have to show them that you’re worth their time by being a diligent student. In other words, you have to add value to their company.
In exchange for your services, you will receive practical experience. That is much more valuable than the theory you learn at university.
After three months, you can renegotiate your position to receive remuneration. Companies love good employees, so there is no reason for them not to pay you if you’re a good employee.
You can use this approach even if you want to study at university. If you’re 17 or 18 years old, living with your parents and making $3,000 per month, you can save, at least, $30,000 per year. Keep up that momentum for three years, and you’ll have $90,000 to study at the age of 21. That’s not too late to go to university. And this approach enables you to graduate debt-free.
If you’re a parent, this approach is good for you and your child. You won’t have to pay for your child’s education, and he/she will learn to pave their own way.
By waiting three years to go to university and graduating debt-free, you avoid being in debt ten years after graduation. See what a difference delaying gratification makes?
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