Home
» Uncategorized » Free Yourself From Babylon
Free Yourself From Babylon
| March 26, 2007 | Posted by Roshawn Watson under Uncategorized |
By: Roshawn Watson
Vision. The Shawshank Redemption is my all-time favorite movie. It chronicles the fictional story of Andy, who is wrongfully framed for the murder of his wife and her lover. He’s imprisoned for decades in Shawshank and suffers through several difficulties. He escapes towards the end of the movie, and there’s something about his freedom that truly resonates with the soul.
Similarly, it has been said that a car just drives better when YOU own it free and clear, but the only way people know to buy cars and pay for college nowadays is by borrowing and paying their payments on-time. Let me paint the portrait for you. The average monthly car note is $479 (Kiplinger, Feb 2007), and the average household owes nearly $10,000 in credit card debt with a payment of ~2-2.5% of the debt owed. Also, many people have an undergraduate student loan, where the average monthly payment being over $182. Now consider, “what could you do if you didn’t owe any payments?” Imagine how much money you could freely GIVE away. Dare to dream about a day where your financial abundance is so great that barring any tremendous economic upset, your wealth will grow indefinitely without any further contributions!
Debt is bondage. Credit cards, auto financing, student loans, furniture financing, and home equity loans are all very common ways people find themselves trapped in the rat race. It is almost impossible to get off the financial treadmill if one is spending more than he or she makes. The saddest part to this story is that a life in debt appears so natural to us. We currently have a negative savings rate largely because we love debt (only economists can figure out such a thing as a negative savings rate). In other words, for every $1 that we earn, we typically spend $1.22. The mere thoughts of paying out of pocket for “big” purchases challenges our core belief systems. We’ll say “I can never afford that.”
Changing core belief systems has been described as “one of the hardest things people will ever undertake in life.”
Some say it is analogous to mental torture, yet it is imperative to improving our personal finances because personal finance is over 80% behavior, which is determined by our belief systems. These belief systems determine the patterns our lives follow. The typical pattern is: get into debt for college, then get married, “buy” a nice house with a second ARM or balloon, get two cars with payments, and a big screen plasma/LCD TV. Soon we’re making a nice income and consider ourselves “prosperous” because we have dodads/toys, yet we are working from paycheck to paycheck to pay the bills. One great man said “there is no prosperity on credit.” This pattern is called the rat race, and millions are playing this game largely because they are paying for today’s happiness with tomorrow’s earnings. Essentially, they have become slaves to their own debts, which is what happened in Babylon centuries ago. Additionally, debt creates resentment in slaves towards their masters. Back when I carried a balance on my credit card, I never prayed that God would bless the president of Discover card once. In fact, I would have been more likely to pray for a computer glitch where they would forgive my bill. Honestly, I have never felt much goodwill towards anyone that I owed. This is one of the reasons it is not advisable to participate in family loans.
Stop playing games. It was once said that “men do not drown by falling in the water, but they drown by staying in the water.” Although debt can be devastating, it is staying in debt that really causes the problems. Think about how much those car payments and student loans are costing over a lifetime. In case you are not sure, the “opportunity costs” for keeping a car note or lease are in the millions! To get out of debt, we must first face the fact that we have a problem: we are spending more than we make. Then, we should get current on everything and organize all of our bills from the smallest to the largest bill owed. Then, pay minimums on everything except the smallest bill. Any extra money that you can free up should go towards the smallest debt owed. After it is payed off, pay on the next largest debt, and add what you were paying on the smallest debt to the minimum payment on the next largest debt. Continue this process until all of the debt is paid. By following this plan, most people can be debt free within 2-5 years. However, I do have a big caution: you cannot borrow your way out of debt. Debt CONsolidation is usually a con, and it is just another way to lose the game. Just because you can move your credit balance to your house does not mean you have eliminated the bill. You have merely moved it. What’s worse is that you still have the same behavior that got you in debt in the first place.
Lastly, I just wanted to say be encouraged! I hear it all the time: you can not live without debt. In fact, the debt-free lifestyle is so hard to come by in today’s Babylonian economy that, with the exception of the homeless, many say it is pure fantasy (or at least unrealistic for most). However, I say it is time to get a new vision of our futures because we will generally move in the direction of our most predominant thoughts. Thus, focus on being debt-free. My journey towards becoming debt free has truly been one of the most profound experiences of my entire life. In fact, every time I pay something off, I feel as if I am breaking free from my own Shawshank and Babylon. Let’s shoot for the moon; surely, we’ll fall amongst the stars.
Lastly, if you like this article, please subscribe to my FREE email updates or RSS feed (reader), Retweet it, Tipd it, Fark it, Stumble it, and tag it on Delicious. Also, click here to receive my eBook for FREE.
Update: I become debt-free in 2008!
© Copyright 2007, Roshawn Watson, Pharm.D. All Rights Reserved.
Well said Shawn. Jessica and I have actually started that debt elimination process like you talked about and are paying off 1 credit card in full this month. It is quite a liberating feeling. I hope you are doing well, and God Bless you!!!Brian
Just read your post. Sounds like one of our conversations. 🙂 You're preaching to the choir with this entry.David
Hey Shawn, As always I enjoyed your blog. I love the way you tied in the movie. Great job! ~Kitra
At first I thought I was reading an ad for another "get out of debt free" service…then I realized it was my own beloved Shawn Watson trying to save my soul. Thank you, Shawn. And by the way, it's tax time now…can I just state for the record that I need a house and a baby???Jules
Shawn, I agree that people here in America view having debt as something 'normal' and as part of their life. How to break out of it when as early as your first year in college one is "prey" to the first credit card offer? I remember well when I received my first credit card in college 6 months after I arrived to the States. I was amazed!!!!! How could someone offer me a credit card when I barely had credit and when I only had a part time job? This did not go with "my normal" way of life.Back home you only get a credit card when you have a steady job and you own a house or a car outright( not the bank) , so the bank that offers you the credit card makes sure they can take something away from you in case you don't pay. Since it is so difficult to get a credit card or even a loan, people are used to pay cash for everything and if one wants to buy something like a piece of furniture one has to wait and save until one is able to afford it. There is no concept of owing to credit cards, or having to pay for student loans. However, as you may know Bolivia doesn't have the greatest economy in the world.I think you've hit the nail on the head when you say people need to change their beliefs, their notion of what appears normal. I don't think people actually stop and think about these issues they just live life as their neighbor, parents, friends who all have debt like them. However, you also have to consider that is not that simple and that perhaps the US needs people buying today with tomorrow's earning to have a strong economy. I am really glad you broke free and have minimal debt 🙂 Claudia
Hey Claudia, I love this. I think that debt is not the reason why our economy is so strong,but rather it's ingeinuity and perservence. If everyone tried to come out of debt at the same time though, we probably could have a problem though, but that's highly improbable. Thanks for the feedback
So I am the same on keeping out of debt. I think many people have gotten out of hand. That value on the average car payment is crazy. Also the number of people who lease are crazy. I have an issue of paying 250 a month.I disagree on your pay off strategy. Many say to pay the highest interest rate off first. Certainly it is rewarding to get rid of a debt payment as fast as possible and may help to keep motivated. I also think getting rid of a payment made each month is useful but if the interest rates for your debts cover a large range say 3% versus 20% then it may be conducive to pay that high one off first.Here is a question for you. If you were to win the lottery for say 300,000 or something that would pay the average person's mortagage, car loan, other debts. Would you invest that money or pay off your debt? Depending on your mortagage you could potentially make more investing than you would lose paying a mortgage with say 30 year fixed at 6%. Maybe keeping some debt is worth it in the end.Brandon
Brandon,I love your example about paying off the mortgage. Paying off a mortgage is far less risky than taking that same money and investing in stock. Also, there will be no additional taxes for paying off the mortgage (other than standard property taxes) whereas you have to pay capital gains tax on your investments (if they do well). I think between taxes and risk, you lose whatever spread you would have made by investing in stocks vs. paying off your home and other debt. Plus, there is such a great feeling you'll get when you no longer have a mortgage. With regard to the debt repayment strategy, I agree that this is highly controversial. I went with this one because it keeps you motivated (as you stated). Plus, once you build some momentum, you will see payments literally melt away. Numerically, there may be better plans, but I believe personal finance is mostly about behavior anyway. Cheers,Shawn
Hi.nice blog.I am fresh jobseeker.please help me that where can i get links of free job posts sites.Thank you…..
This comment has been removed by a blog administrator.
[…] written about the managing financial risks aspect of their jobs with past blogs: emergency fund and minimizing debt. The parallels of my personal finance advice to running a business are […]