Did you do these 3 things?
On the 2nd of September I told you to tick the following 3 goals off before Xmas. A reminder:
This week, I have 3 practical goals I want you to achieve before Xmas:
? Get rid of a credit card even if you owe nothing on it
? Get rid of get now worry about it later (BNPL)
? Make $500 to help you cover Xmas presents
That was a short 3 months ago. I hope that 3 months has been kind to you.
In that time, the Official Cash Rate (which under pins what we pay for most of the money that we borrow) has gone up by over 40% from 3% to 4.25%.
You will know by now that debt is becoming more expensive to access.
That means that fewer people will be able to access debt because it becomes too risky from a lending lens to expect you or I to be able to pay it all back.
For those who have already ticked it up and are in the repayment cycle, debt gets harder to get on top of.
When we have debt and the interest rate rises, we lose more of our disposable income to paying off the interest component rather than paying down the actual debt. The debt to get the thing that we actually wanted.
When you used your BNPL, credit card or consumer finance, I am sure you didn’t want the interest they were offering you? You wanted the good or service you actually purchased.
Rates were often cheap or non-existent on this debt, so hey give me the good or service and I’ll worry about the interest later (if any).
In September I wanted to give you a head start because I could see these rate rises coming. If you’re into this sh!t, anyone could. It didn’t take a genius.
Even if rates didn’t rise, you’re still getting smacked with higher costs through inflation = less disposable income unless your income is rising, but even if it is, you’re probably losing a good chunk of that to tax.
The point of September's email was to get ahead of the crowd and slowly decrease our reliance on these debt products and get out of the habit of using them.
Removing our access to these sexy debt tools as they simply teach us bad habits.
We each come up with many reasons and love the ‘incentives’ to use these debt products, like delaying payment, splitting payments, no fees, no interest, 36 months to repay, rewards and the list goes on.
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All of these are based around us spending. Spending money we haven’t earnt yet. Borrowing from your future self. Using your future wages. Asking tomorrow’s you if today’s you can spend their money. How many more ways do you want it explained?
I too have had a $15k credit card, consumer credit, a car loan. You name it I’ve used it. I know how this goes. It’s all nice and innocent until you are stuck in the cycle of repaying the debt.
When my credit card was interest free, my $500 repayment cleared $500 of the balance (realistically it free’d up $500 of more sh!t spending).
When it was incurring interest, my $500 repayment was paying for $100 in interest and only clearing $400 off of the balance.
But something else was happening. Something even more costly that I couldn’t count the cost of for many years.
When you pay down debt, you CAN NOT use that money to invest in your future and make smart choices. Because you are tidying up your past choices.
For me, I missed out on buying Xero shares. $0.60cents at the time, they went to over $100 a share in the future.
Would I have timed the top and bottom perfectly? Of course not.
The point is that I COULD NOT invest in these shares even if I wanted to as I was still tidying up past decisions, clearing debt from buying sh!t that I didn’t really need.
We haven’t seen levels of inflation like this for a long time and we haven’t seen an official cash rate around the 4% mark since 2008 when it was in free fall post the global financial crisis.
How long will it stay there? Who knows?
But there are always opportunities that will come into your life. And when your first priority is clearing debt, you are stuck in the past, not progressing into the future taking those opportunities.
We’ve had the sweet sweet taste of cheap, interest-free, no-consequences debt all around us for so long with a very low official cash rate. But that has turned, very quickly.
Make sure your habits and behaviour change too.
Be very careful what you use debt for and what interest rate you’re paying on it.
A good question to ask yourself before you tick something up is 'will the future me be ok with repaying this?'.
Have a brilliant weekend
Luke
Building Efficient Systems for Automotive Excellence: Empowering Business Growth Beyond the Workshop
2 年I remember being stuck in that cycle too. The hard part was not spending between pay days. It was exciting to setup a debt clearing plan, make that first payment but then there was nothing to do between pays but wait. It seemed like it would take forever. Now people have options with the internet and market place etc to make a little extra to pay it down faster. Keep up the top work. Appreciate the effort.