What is the scariest movie that you have ever watched? Mine was the Grudge (2004). I ask this because I am about to ask you to do something that is even scarier than watching the movie you picked. And that is… to write down all your debt. Yikes.
Before we get into the details, like talk a little about the psychological benefits of identifying all of our debts. My favorite book for beginners to the world of finance is “I Will Teach You to be Rich” by Ramti Sethi. He says that everyone should know their exact debt payoff date. This a powerful statement because most people think that their debts are just going to randomly get paid off.
Another important tip before you start your journey is to know the difference between an asset and a liability. Robert Kiyosaki, of “Rich Dad Poor Dad” fame calls an asset anything that puts money into your pocket. A liability is something that takes money from your pocket. Knowing how to leverage your assets will accelerate your debt payoff journey and expedite your path to financial independence.
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Before we get into making out lists, let’s talk about the “why” behind starting our debt payoff journey. My wife and I started our debt payoff journey because we were fed up with the bulls***. You look at your credit card account and it says the same amount every month, even when you are no longer using it. First, we had to decide to start investing or start focusing on paying down debt.
We actually started our journey to financial independence at the same time as our debt payoff journey. This means that we were saving and investing at the same time that we were paying of debt.
Why did we decide to do them both concurrently? Common wisdom says to pay off all your debt before starting to invest. This makes complete sense on paper. Especially if you are talking about high-interest debt.
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However, I figured that learning how to invest was of utmost importance. As I learned to invest, my financial education increased. This financial education helped me pay down debt even faster. When you start your financial independence journey, a sort of magic takes over your life. Even though you still have debt, you instantly feel more relieved and stress-free. You take back control.
Once you identify all your debts, it is just a matter of time until they are paid off. However, investing and building financial education cannot wait. They need to be a top priority in your life. Again, this is just my belief. My wife and I should have all our debt paid off by the end of 2021. In the meantime, we have saved and invested $65,000 in the last year and a half.
Paying off your debt without financial education will take more time and more energy. If you start to invest, you will begin to build knowledge of creating multiple streams of income. Instead of seeing the world through the lens of scarcity, you will see the world of abundance.
The best thing that we learned was to build multiple streams of income. Seeing those dividends come in passively helped us change our entire investment horizon. We started by buying dividend-paying stocks and this lead to investing in electronic traded funds, bond funds, preferred shares, closed-end funds, treasuries, and Fundrise. I believe if we had just stuck to only paying down debt, we would still live in a world of scarcity, waiting for our paycheck to make payments on debt.
So You Think That You are Middle Class? ……Haha
As you pay down debt, you will start to free up cash flow. More money will be available to invest or pay down debt. There are many ways to use this cash flow, but my wife and I put it towards our investment portfolio. Watching our portfolio grow was more addictive than watching our debt go down. However, our debt was getting reduced every single month, quietly in the background.
Magically, as our financial education increased, our opportunities increased. We were able to recognize different ways to make more income than we then used to pay off the debt in a lump sum. Again, I will do a complete review of our debt payoff journey once it is finalized. I can’t wait!
So, how do you feel about your debt pay off the journey? How will you start it? Will you invest concurrently or will you focus on paying down debt as fast as possible? The choice is up to.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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