Why it essential to become debt free? Living a life under the debt burden is stressful.
Only a debt free life can be “free & happy” in real sense.
When life if free, we can work to earn money for “self”.
Every penny that is earned can be used the way “we” want.
A person who has been paying debt for all these years can realise that, to become debt free is like a dream come true.
Paycheck comes in, and there are no EMI’s to be paid, because there are no debts.
The person will be sitting on a pile of huge cash savings.
This saving can than be used for more important things like:
- Emergency fund creation,
- Net worth building, and
- Enhancing standard of living.
This is not all. The benefits of a debt free life cannot be limited only to “having more cash savings”.
Its benefits are more far-reaching than we can think off.
#1. What is debt free living?
Living a debt free life has so much powers that it can take people on a different tangent.
It will not be an overstatement to say that a person who has become debt free, has a highly evolved thought process.
They work to earn and lead a lifestyle they like.
But a debt laden person has an obligation to earn. He earns mainly to pay his debt instalments (EMIs).
Is this the right way to lead ones life? No.
What should be our number one priority of life?
“To lead a complete and happy life”.
How this can be done? For me my priorities are like this:
- Taking care of family,
- Maintaining a standard of living of choice,
- Feeling free,
- Having a mind which is fertile, innovative and calm.
Though these are very general statements, but deep within these statements, hidden are those meanings which makes us feel “complete and happy”.
To achieve these milestones, one of the biggest obstacle is “debt burdened life”.
#2. Debt is dangerous
Though debt may look like any other “financial product”, but its negative impact is more severe on our “psychology” than on our “pockets”.
Do you know why debt is so dangerous?
Because it builds a false belief of “affordability” in our mind.
Ideally speaking, we must own only those things that we can afford to buy.
But debt has created a new definition of affordability in our mind. This definition is very wrong.
“If we can pay the loan EMI, it means it is affordable”.
The real definition of affordability is,
“If we have enough savings for a thing, it mean we can afford to buy it”.
It is essential to erase the wrong definition of affordability from our mind.
How to erase? Start the process of becoming debt free.
#3. Everybody has some debt, why to worry?
Discuss the issue of “carrying debt” with your office colleagues.
You should not be surprised to find that 90% or more consider debt as a part of life.
Few common debts that most people carry are:
- Car loan,
- Home loan, and
- Education loan.
There will be people who carry all three.
Taking loan from bank has become so common that, we no longer tag it as a “wrong thing”.
But in reality, taking debt is a wrong thing. Why?
Why one has to resort to debt? Two main reasons:
- Either one is overspendingor,
- One has not saved enoughin the past for this priority.
A person who is earning Rs.100,000/month in salary, why he needs to buy a house whose EMI is Rs.50,000/month?
This is overspending.
[Read: How to plan home purchase]
A person whose child is 17 years of age, why he needs to take an education loan to fund his child’s higher education fees?
This is because he did not save for this important milestone in last 17 years.
What does it mean?
Taking debt is not a crime. But one must acknowledge this fact that debt is not good either.
If one has to fall to debt, it means there is/was something wrong.
How to correct this wrong?
Spend less and save more. For the moment, delay your purchase.
It is not important that everybody around you carries debt, what is more important is, “you become debt free”.
This is the right thing to do.
#4. Why to become debt free?
What we have seen till now?
- What it means by debt free living.
- How debt is dangerous.
- Why taking debt is wrong.
If these are not enough motivations for you to become debt free, here are few more kickbacks.
It is true that the path towards leading a debt free life is not easy.
To become debt free, one has to save more. These accumulated savings must go to prepay your loans.
In the initial months, the pain of not being able to spend your savings the way you want will be high.
In that phase, you will need to constantly motivate yourself to keep prepayments of your loan without any miss.
This act of frugality is tougher than it sounds.
To make the act easier, here are few motivational quotes that will charge you to become debt free on fast track:
#4.1 Debt free people are uniquely different.
These are people who do not use credit cards to earn reward points.
They do not buy their next car just because they can afford its EMI.
These are people who buy homes with virtually zero loans.
They will never have to bother about loans after 60, or student loan for their child’s higher education.
How many of us can claim to be like this?
I am sure, only a very tiny minority will qualify. What does it prove?
Debt free people are uniquely different.
And it is this difference, that makes them highly successful in life.
#4.2 Debt free people never take debt.
Isn’t it obvious? Actually not.
All debt free people are not debt-free because they did not avail debt in their life.
In fact the opposite is more prevalent.
Most of the debt free people had debt, but they consciously decided to get rid of it.
Once they become debt free, they have more “free cash” in their hand.
This free cash they can use to buy things they like.
When people take debt? They take debt when they do not have enough money to buy things they love.
But debt free people always seem to have enough monty in hand.
Hence they never resort to debt purchases again.
#4.3 Debt free people are masters in delaying gratifications.
People who can delay gratifications are mentally super-strong.
When it comes to purchasing new things, probably debt free people spend more than any one else.
But there is a difference. Do you know what?
When people around them will be buying a nice vacation to Europe, debt free people will be “planning & saving for it”.
I might have gone to Paris 3 years back, but a debt free person will go to Paris today.
Is he late? No, I was too early.
I compromised all other priorities to fund my Paris travel.
But a debt free person did not go to Paris 3 years back, because he knew he can afford it (without debt) after 3 years.
He had a plan in mind which was executing perfectly.
Debt free people are masters of delaying their gratifications. What helps them to do so?
A theory which says like this:
Nothing in life is less important than the other. But what is different, is the “time of execution”.
Buying a LCD TV today may gain a bigger priority than visiting Paris.
Debt free people are masters when it comes to priority settings and planning for it.
They take their financial decisions more intelligently than others.
#4.4 Debt free people stand out in crowd.
Debt free people has that aura built-up around them. If you give them a little more attention, you can see their aura.
They seem to carry a confidence and magnetic strength that is only visible to our subconscious mind.
Forged steel is tough, right?
Because they have taken the “heat and beating” in the past. This is called hard earned experience.
They have past the toughest tests and emerged as super strong.
To gain that strength and confidence, one must take-on the challenges of life.
One such challenge is to become debt free.
Becoming debt free is not just one activity. It is a result of combination of several acts of financial intelligence:
- Having a financial plan.
- Earning more.
- Spending frugally.
- Consistently diverting savings to prepay debt.
- Buying things that are either necessary or out of love.
These activities may look timid in first instance. But when one has to follow it constantly for next 5 years, it becomes super tough.
Walking one step is easy. But walking million steps is pure power.
Becoming debt free can be one of the biggest challenges of life.
Debt free people have passed this challenge. Only one in hundred can claim to achieve it.
It is tough, but I must say it is easier than carrying a debt burden all the life.
Want to become debt free? Try this…
I have written a separate blog post on how to get out of debt faster. I will suggest you to read this post.
To become debt free, what is most important is to realise first that “being in debt is a wrong thing”.
Debt free living is a actually a preamble to “free and happy life”.
Carrying debt makes us behave like slaves. Debt alters our thought process.
A mind which does not abhors debt, picks wrong signals related to purchasing.
These signals in turn influence the person to overspend.
If you look around yourself, almost everybody is carrying debt. But this does not make debt a good thing.
Take pride is saying that you have taken the initiative to become debt free. Hence you are living a more frugal life.
Do not spend money just because posting a picture of it on Facebook will get you more likes and shares.
Governments, banks, financial institutions etc, almost everybody seems to market the concept of debt.
But do not fall into this trap.
They have their own vested interest when they make loans more affordable for us.
Cheaper debt, means more people will avail debt. This increases public spending, and hence the GDP grows faster.
But do not be the one contributing to GDP on basis of loan.
You can contribute to GDP more by doing the following:
- Have a fianncial plan.
- Save more.
- Become debt free.
- Spend on things you actually love.