Back in April of 2009, I was already mad at my debt. It wasn’t until I conjured up the idea of tabulating how much interest I was paying, however, that my eyes were finally opened to the enormous power my debt had over my ability to retain my own hard earned money!
Here is the story of what pushed me over the edge and ignited an unquenchable fire that will burn hot until that glorious day when our last debt obligation is finally met…
Already four months into our Debt Free Adventure, I was working tirelessly to gain control over our monthly cash flow. I was angry at our debt, and consumed with the idea of establishing disciplined management over our monthly expenditures. This was not easy.
Because neither my wife nor I were experienced budgeters, getting a handle on ‘where every dollar was going’ was not something that came naturally to us. Maybe you can relate.
Being sick of our paycheck-to-paycheck lifestyle gave us a lot of motivation, but we needed more. We were committed to budgeting, but I knew it would be hard to sustain the necessary level of intensity and passion. After all, changing our relationship with money was akin to reinventing your golf swing.
Regardless, we knew it was essential if we were ever going to master our money. So I set off in search of the necessary motivation. Then one happy day in April, I found it!
I discovered how much my debt cost
I’m not talking about how much my payments were. I’m talking about how much my debt was costing me. How much I was paying each and every month for someone to lend me money. What if that money was no longer vanishing into the silk pockets of banking geniuses? What if it was going straight into my pocket and staying there?
To find and sustain the necessary passion, all I needed to do was calculate how much money I was paying in interest every month, print the amount off in HUGE NUMBERS, and stick it on my fridge. Every month it makes me mad. Every month I strive to make that number go down as much as possible.
Want to know what’s even better? This simple exercise will help bring the whole family on board. Show the number to everyone, and explain how this amount can be yours every single month if you can just buckle down get out of debt. From that day forward, everyone will see that number on the fridge — every month.
This simple idea helped us develop a lasting financial philosophy to apply to our family finances. A financial mission statement of sorts to embody the spirit of our Debt Free Adventure — “sacrifice now to benefit later.” Think of it kind of like the more popular but less cool, “Live like no one else, so you can live like no one else.”
That’s right… I’m assigning homework. Don’t worry, it’s easy, and it won’t be graded. Well, I won’t be grading you… I can’t promise the same for Nickel.
Do yourself a solid and set aside 30-60 minutes to complete the following:
- Write out a list of all debts on which you are paying interest (or will be paying interest, like that six months “same as cash” couch that you bought). For whatever reason, the simple act of writing it down and having a physical copy is much more powerful than creating a spreadsheet.
- Identify the interest rate of each debt and record them on your list. You shouldn’t need this for the calculation, but it’s good to see those numbers staring you in the face.
- Record the actual amount of interest paid last month for each and every one of your debts. In other words, separate the principal from the interest and record the latter. You can use an interest calculator or do the calculation yourself.
- Add all of your interest payments together to discover exactly how much your debt is costing you.
- Get mad at how much your debt is costing you. The goal here is to inspire a lifestyle change resulting in increased financial discipline.
- Repeat this exercise every month and watch your progress. This will help remind you of how much your debt costs you, and watching that number shrink will help you stay motivated.
Although I started this exercise in April of 2009, I didn’t realize how powerful it was until I did it again six months later. I now intend to do this every month until I am completely debt free.
I know that I told you do this by hand, and you should — at least at first. Over time, however, you should be able to transition to a spreadsheet to more easily track your progress.
Spread the word
If you already have a handle on all of this stuff… Awesome! Now go help someone else see the light. I know you know someone who needs your help. You’re probably thinking of them right now, so… Go help!
My goal is to get each and every debtor that I run into to complete this exercise as soon as possible. I’m going to be like that annoying buddy of yours who sells Quixtar or Herbalife and will never let a conversation go by without bringing it up. Why? Because I know it will help people.
Make no mistake about it… I want this to become the next personal finance phenomenon. Hopefully, this article and simple homework assignment will inspire you to pursue a debt free life. It worked for me, so please give it a try.
However you do it… Just make sure you do it.
Think of it this way… That money can either flow out of your wallet OR into your pocket. Which do you prefer? The choice is yours!