Did you know that most Americans have zero dollars set aside for an emergency? By “most,” I mean 53%. Of households with incomes below $50,000.00 annually, only 26% have any emergency savings accounts.
Emergency savings are a complicated matter. Here’s why-setting aside money in a traditional savings account will earn about 1% more or less in interest. That is not enough to offset the high cost of interest on any loan. Whether it’s a car loan, a student loan, or a credit card loan, I can see no value in setting aside money when it can be used to pay off loans.
Accept risk
But this is dangerous. We can all understand that if we have an emergency and no money, we are in trouble. We’ll have to figure out how to pay whatever amount we need and most people will simply use a credit card.
The fact is that it is very unlikely that you will find any investment account that will pay you what you are paying in interest to a credit card company. If you can find an investment that earns 18% or more, I suggest you buy shares. The reality is that you won’t find any investment that will consistently pay that much.
Setting aside money for an emergency is a great idea once you have your debt paid off. It’s a risk, but I can’t see any way to avoid it. Additionally, if you have been living paycheck to paycheck, just getting by and paying the minimum on your loans, you have to sort that out first.
Embrace the facts
How do you sort it out when you are making under $50,000.00 annually? It will be challenging. You will have to sacrifice. I have heard and read the pushback on this concept and I understand the sentiment.
People say I’m not going to live without the little luxuries I enjoy because I only have one life to live, and I’m going to treat myself. I’ll never give up___ fill in the blank. I know a lot has been made of millennials and avocado toast. I completely understand why they feel annoyed by this random argument about spending. It isn’t a genuine argument that people spend so much on avocado toast that they can’t afford to buy a house. It’s the avocado toast, the meals in restaurants, the new cars, the clothes, the shopping sprees, the concerts, and more. It all adds up.
It’s not easy but its worth it
I think of it like this: Imagine an Olympic athlete, a movie star, or an exceptional author. The one thing they all have in common is that they reached peak success by sacrificing. No one you admire came to their position of success without sacrifice. Athletes make it look easy because they spend years focused on form, diet, training, and more. They trained instead of going out to dinner with friends. They trained instead of getting drunk on a Saturday night. They sacrificed a lot of fun and socializing to be successful.
Think of your favorite movie star. Now take time to look up their bio on the internet. I can assure you that they didn’t have overnight success, even if it looks that way. They worked for years to become a household name, and most of those years were spent in obscurity.
How about the famous author? They wrote ten or more novels that didn’t get picked up by a publisher.
No matter what you are trying to do, you will have to work hard and sacrifice to do it well. The same goes for financial freedom. You will have to make sacrifices if you want to free yourself from debt. And sometimes it will suck.
Focus on the outcome
Ultimately, you will learn something really valuable. You will learn to delay gratification. According to Wikipedia, people who are good at delayed gratification are shown to be successful in several areas of life, including academic success, physical health, psychological health, and social competence. You can learn more about delayed gratification here.
I was able to find ways to accomplish most tasks in life for very little money or for free. You have to be open to adjusting how you approach life in order to do this, but it’s well worth it. Of course, if you are under-earning, you’ll be challenged. I write for people who have relatively high incomes, but who haven’t learned basic budgeting skills. For every one, you must stop spending, and start paying off loans. I like to pay off the highest-interest loans first because they cost the most. There is another thought: paying off a smaller loan first will provide a psychological boost that will motivate a person to pay off another loan and so on. It depends on how you think about it, but ultimately, the goal is what should be the focus of the effort, and the goal is to pay off all debt.
Try this exercise
Try this exercise. Imagine what it will be like when the only money you have to spend every month is on housing, food, utilities, transportation, and healthcare. All the rest of the money you earn is free and clear. You can figure this out by creating a simple spreadsheet. Include all your monthly income in one column. In a second column, include all you spend on mandatory expenses like those listed above. In a third column, include all the expenses you have associated with loans. Look at the amount in the third column, and understand that you will have that amount to invest. It’s that simple.
When I paid off my debt, I simply invested my money in an index fund. At one point, I had enough money to quit my job and travel the world for a year. It was a great investment in me. I’ve visited over twenty countries since 2016. Since 2016, I’ve worked for money for three years. I’ve written three books that I’m proud of. Including “Never Worry About Money Again: Gain Financial Freedom By Becoming Better At Managing The Money You Have”
Imagine sharing your vast knowledge about your area of expertise with an audience that needs to learn what you can teach. How would that feel?
Imagine never worrying about money again. Imagine buying a car with cash and never having a car payment again.
Imagine traveling to a far-off dream destination, a location you have always fantasized about visiting, and paying for your trip in full.
Imagine sending your child to a private school to advance their opportunity in this world without needing to finance their education.
Imagine quitting your job and going back to school so you can pursue the career you truly want.
Imagine paying cash for your first home.
All of this is possible, but it’s not possible if you refuse to make sacrifices. There is no magic bean out there that will grow you a money tree. You are the magic, and you must sacrifice to grow the money tree you want. Use what you imagine as motivation to create the life you want.
If you need hints about how to go about getting out of debt, check out my blog post, How to Get Out of Debt a Step By-Step Plan
