As I mentioned in a recent previous post, Financial Principles: Lighthouses that Will Never Steer You Wrong, I want to expound on 10 financial principles that are absolute and unchanging and that if applied will dramatically change your financial life:
Principle 4: Power Down Your Debt and Power Up Your Fortune. Most people don’t know the difference between “good” and “bad” debt. This principle, which is powerful and dramatic, teaches the difference between good and bad debt and how to get out of bad debt as quickly as possible. By applying this principle, it is mathematically feasible for anyone, no matter how bad their debt-load is, to get completely out of debt in nine years or less, including a 30-year mortgage. Why not become debt-free and pay yourself compound interest instead of giving it to creditors? Then without taking on any additional risk or needing any more money you can not only be out of debt in 30 years, but out of debt with a million dollars in your pocket!
Few people become proficient with mathematics to be able to calculate the time-value of money. Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it, he who doesn’t pays it.” Because math can be very complex and rather dry, if you will, we don’t often go there, we don’t set aside a Friday night to spend two hours with our calculator to figure out how much our debt is actually costing us. Furthermore, I wonder how many people actually have a time-value-of-money calculator? Odds are 1:1,000.
But I have a solution that makes creating a big picture view of all your debt and how much time it will take to get out of ALL of it (mortgage included) very easy. Anyone can see examples of how the Money Mastery financial calculating software works to create a debt elimination plan. Just go to www.moneymastery.com and click on the “Eliminate Debt” window. Then scroll down to see an example of Mark and Joyce’s Get Out of Debt Report, a case study. I have included an image of this case study here:
Notice that Mark and Joyce have six debts, totaling $179,352. This is like any average family across the nation. The time it will take to just pay off existing debt, will take 29 years and they will have paid $194,993 in interest! While the numbers will be different from family to family, the interest expense is there for everyone and drains away a fortune.
But using Power Down principles, Mark and Joyce can get out of all this debt, including their mortgage in under 10 years, and it is mathematically possible for anyone with five debts or more to do the same, even you!!! To Power Down, Mark and Joyce will pay off the first debt in a prioritized list and apply that payment to the next one on their list until they are all gone. This will let them get out of debt in 9 years and 4 months instead of 29 years. All debts will be paid, including their mortgage and the interest expense dropped from $194,993, all the way down to $61,035. Mark and Joyce did not come up with any extra money, they just used the same payments they were already applying to power down their debt. The key to their success was that they had a systemized plan for getting out of debt, which helped they stay out of getting into NEW debt.
Now, for the compound interest calculation: If Mark and Joyce were to just save the same amount of debt payments after they are completely out of all debt over the 29 years, their savings will total $913,738. I don’t know about you, but this savings amount is called a fortune where I come from.
One last calculation, if Mark and Joyce started this Power Down process by paying an additional “accelerator payment” they have found by getting their spending under control of $300 a month, they would be out of debt in 7 years and the savings over the same 29 years would amass to $1,167,016 !!! This is compound interest at its finest.
Let’s say you don’t stop getting into debt, and you don’t have a plan for getting out of debt. You will pay the $194,000 in interest and more, and thus miss out on the $1,167,016. Do you want to pay $194,000, or receive $1,167,000? Same money, same income, same debts, but done in a different way, using compound interest, will work for you instead of against you, just like the brilliant Albert Einstein said.
I suggest you go to www.moneymastery.com and check it out. Don’t miss out on your small fortune. My gift to you☺