Savings & Debt Decoded
I am going to address what I consider to be the financial mid-section for Americans. Saving money and handling debt. It’s like the cream filling inside the Oreo. Without it you basically just have crackers. This is very much the financial lynchpin when it comes to wealth. Those who figure this part out are more likely to build wealth. Those who cannot figure this out are less likely.
When I discuss saving money I am talking about the retention of income with the intention to invest.
When I discuss handling debt, I am talking about paying off your debt as if it were an investment. Meaning you consider the capital required, cash flow, rate of return, and whether or not it meets your goals.
The average person does these two things at the expense of each other. Ideally, they actually work together.
You’ve seen this. The person who saves no money and just relies on debt. Or the person who hoards money and doesn’t want to use it so they go into debt instead. Or the person who is so gazelle intense about paying off their debt, they never have any money and they always end up back in debt. Keep in mind, no matter how fast a gazelle runs away from the lion, it will never eat the lion and eventually does get eaten by the lion. It is just the same with debt. Those who intently focus only on paying off debt will never end up building wealth and eventually they will always end up back in debt.
So how do we align these two things?
Well, first you need income. If you’re broke, this plan isn’t going to work. Go get unbroke. After all, you are the only reason you’re broke so you’re the only reason you aren’t going to be broke. Get your income up so you actually have some money to save.
At that point, you need to commit to a forced savings plan.
Did you know that someone with a forced savings plan is 100% more likely to save money than someone who doesn’t? It might sound ridiculous, but this person WILL put money aside. They don’t have a choice. Those of my clients who use our forced savings program saving twice as much money as those who do not.
Why a forced savings plan though? It is the same reason the IRS takes your taxes before you see your check. The same reason why your mortgage payment isn’t voluntary. The same reason your 401k is on auto-deduct. If you leave room for it to not happen, it won’t happen.
You want a plan that drafts a fixed amount of money each month into a Sacred Account where you will earn interest, have access to your money, protect what you put in, and not pay taxes. I recommend The Sacred Account for this.
Back to saving. Why are we saving? To invest. But what about debt?
Well, as I mentioned, debt is an investment. Banks loan you money because for them it is an investment. So when you pay off a loan, you aren’t paying off a loan, you are buying a performing investment…your own debt.
It is critical that you look at debt as an investment. It isn’t emotional. It isn’t going to send you to hell. It is simply a financial instrument that most people have been on the wrong end of.
Want proof? A credit card company loans you money. The money they loaned you is considered their principal investment. The payments you make are considered their cash flow. The interest you pay is considered their rate of return.
So by paying off a debt you are investing your own principal amount. You are earning cash flow by not paying it. You are earning interest by not paying future interest.
Let’s test this out to make sure it is clicking. A credit card you are being charged 20% on, but then pay off is an investment with a 20% rate of return because it used to cost you 20% and now it does not.
Okay so here is the overall goal.
- Commit to a forced savings plan in a Sacred Account
- Save the highest amount of your gross income as possible (40% should be the target)
- Save until your Sacred Account has enough money in it to pay off your smallest debt balance. Do so. This is your first investment.
- Take the freed up cash flow from that debt and invest it in your Sacred Account as well.
- Continue saving until you can use the Sacred Account to pay off your next smallest debt. Do so. This is your 2nd investment.
- Repeat until all debts (other than homes and cars) are paid off
You may not think this sounds exciting, but let me tell you if you’re not an accredited investor you aren’t going to be investing and get 20% returns. You’re going to be investing and maybe getting 8%. This means if you can pay off a credit card at 15%, that is way better than anything else you’re going to get.
For you gazelle intense debt snowballers, you’re probably asking how this is different than what you’re already doing?
The key difference is that you’re not paying off your debt until you have SAVED enough money into your Sacred Account to pay off the entire debt. This way you have money in your account and you aren’t at risk of insolvency and on the verge of going back into debt.
Another key difference is that the Sacred Account continues growing your money even while you are using it to pay off your debt. So by putting as much money as you can in there first, you are guaranteeing a higher future value on your money by the time you are out of debt.
For example, you put $10,000 into your Sacred Account and use it to then pay off your debt. Well, your $10,000 is still earning dividends and growing even though you’re using it to pay off this debt. Which means that you are going to have more than $10,000 in that account by the time you pay yourself back. Versus just throwing $10,000 cash towards your debt. Yes, you’re out of debt, but now you are also broke and your money is not working for you either.
This is so critical. To get.
Start a forced savings plan. Invest in paying off your debt with your Sacred Account. And the 3rd ingredient?
Personal development.
By working on yourself you are actually increasing your capacity to earn income. The more able you are, the better your income is going to be. So if you invest in things like sales training, business courses, and personal development you will probably be able to speed this entire thing up.
If you read this and thought this really made sense or that you’ve been doing this wrong and you’d like to implement this strategy, but you’d like my help then click here.
Own Your Potential,
Jerry Fetta
CEO & Founder of Wealth DynamX
Jerry Fetta helps his clients gain more financial knowledge, make more money, keep more of it, and multiply what they keep.
If you feel like one or more of these areas is costing you money and opportunity right now, then get more information about Jerry Fetta and Wealth DynamX by going to www.WealthDynamX.com/contact
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