Why Debt Relief Starts With Understanding Your Debt
In America today, as in most western countries, debt is the normal state of affairs.
Less than 1% of the population has no debt.
1%!That's staggering, but also when you examine it further not that surprising.
When you take credit cards, mortgages, business loans and personal loans you get a picture of a society that endorses personal debts as a part of life.
When we die the accountants can work out the difference between what we owe and what all those assets can be sold for.
To me, and hopefully to you as you are reading this article, that's not good enough.
I want to know - right now - whether my net worth is positive or negative.
The standard way of doing this is to add up everything you have and then subtract everything you owe.
And people who make a living giving financial advice will recommend you do this every so often and all is good.
This only gives a very shallow understanding of the picture.
The real equation should only start with assets vs debts.
It then needs to take into consideration another factor - income vs expenses.
Your income defines all the disposable money you have to cover living costs and luxuries, your expenses include those living costs and all the interest payments on your debt.
When looking at their personal net worth it is amazing how many people leave out an income vs expenses calculation.
It's also very important.
You see, there is practically 0 chance of your expenses suddenly disappearing.
You are not likely to get a call from your landlord saying "Hey guys - free rent for a year!" or from your bank manager saying "Well, we misplaced your credit card records, so we're just going to start you from 0 again okay?".
It just doesn't happen.
Your income on the other hand can be a different matter.
How secure is it?It's quite possible you could turn up at work tomorrow to find the doors shut forever.
It's actually happened to me except they never shut the doors, they just stopped paying me and I found myself working for free and owed $11,000 of wages I never saw.
So when you start mapping out a debt relief strategy, don't just look at your loans and try and figure out how you are going to pay them off.
Consider your income too and how secure that is.
Most people have one income source - their job.
And when you are in that situation you are at the mercy of one person - your boss.
There's a reason that stock brokers don't put all their stocks in one company - because if that bombs they lose everything.
Consider the importance of this outlook, and then find a way of increasing AND DIVERSIFYING your income.
Less than 1% of the population has no debt.
1%!That's staggering, but also when you examine it further not that surprising.
When you take credit cards, mortgages, business loans and personal loans you get a picture of a society that endorses personal debts as a part of life.
When we die the accountants can work out the difference between what we owe and what all those assets can be sold for.
To me, and hopefully to you as you are reading this article, that's not good enough.
I want to know - right now - whether my net worth is positive or negative.
The standard way of doing this is to add up everything you have and then subtract everything you owe.
And people who make a living giving financial advice will recommend you do this every so often and all is good.
This only gives a very shallow understanding of the picture.
The real equation should only start with assets vs debts.
It then needs to take into consideration another factor - income vs expenses.
Your income defines all the disposable money you have to cover living costs and luxuries, your expenses include those living costs and all the interest payments on your debt.
When looking at their personal net worth it is amazing how many people leave out an income vs expenses calculation.
It's also very important.
You see, there is practically 0 chance of your expenses suddenly disappearing.
You are not likely to get a call from your landlord saying "Hey guys - free rent for a year!" or from your bank manager saying "Well, we misplaced your credit card records, so we're just going to start you from 0 again okay?".
It just doesn't happen.
Your income on the other hand can be a different matter.
How secure is it?It's quite possible you could turn up at work tomorrow to find the doors shut forever.
It's actually happened to me except they never shut the doors, they just stopped paying me and I found myself working for free and owed $11,000 of wages I never saw.
So when you start mapping out a debt relief strategy, don't just look at your loans and try and figure out how you are going to pay them off.
Consider your income too and how secure that is.
Most people have one income source - their job.
And when you are in that situation you are at the mercy of one person - your boss.
There's a reason that stock brokers don't put all their stocks in one company - because if that bombs they lose everything.
Consider the importance of this outlook, and then find a way of increasing AND DIVERSIFYING your income.
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