October 1, 2016

WHY DO WE HAVE DEBT?

Last week, I was sitting with a friend and she was reading my article on buying a house with 20% down. After about two minutes of reading, she goes, “I knew that!”

Yet, I know that she didn’t follow the rule.

The fact is we all know the rules: pay off debt, don’t get into debt, save your money, and invest your money for retirement. The problem is that we don’t do it. We get into debt, we get overwhelmed by life and stop saving. We forget that retirement is right around the corner and one day we wake up in the middle of the night worried, stressed and wondering what we are going to do.

Since most of you know the rules, we are going to talk about why we fail. We fail because we get caught up in keeping up. All of our friends are getting married and having a wedding. So, will we too.

All of our friends bought a house and so will we.

All our friends go to private college and so will we.

Before we know it, we have a huge house bill, credit card bills, and student loan bills. Sure, we fit in, but what good does it do us? This is the problem with the middle class lifestyle.

The middle class wants to fantasize that we are part of the rich ruling class. We want to go to school in ivy clad buildings, live in homes with two family rooms and lots of space, drive cars with the leather heated seats, and have weddings that remind us of Jackie Kennedy’s. We forget that the rich have millions sitting in investments and are living off of the never-ending dividends from that principal, while we are spending the principal and keeping ourselves poor.

The fact is that if we really want to break out of the middle class lifestyle, we have to stop living like we are rich. We have to build our principal up to a point that we can live off the dividends. The only way we can successfully do this is by walking away from the game.

There is a wonderful story of old man Rockefeller. He was the one that built the family name and made the money. One night, he went to New York City and needed a room to spend the night. He went to the Plaza where his son stayed and went to the desk to check in. The clerk ask him, “Sir will you be staying in the Penthouse like your son?” His response shocked everyone that heard. “No, I don’t have a rich father like my son.”

If you grew up middle class, then chances are you don’t have a rich daddy either. If that is true, then you have to stop living like you do. You have to start making the hard decisions that are needed for you to become one.

The truth is that when the economists sat down to figure out who the 1% was, they didn’t list out a specific neighborhood, car, college or the size of the person’s wedding. The only thing they counted was money.

The truth that no one will tell you is that you don’t need the fancy car, the fancy college, the huge wedding or the incredible house to be rich in America. What you need are investments and cash. That is what separates the 1% from the masses. We can try to fake it. But, let’s be honest — everyone knows you’re only faking it.

The question you have to ask is: do you want to spend your life faking it during the day and losing sleep at night?

Or do you really want to take a shot at financial freedom?

If you do, then you need to start living by the financial rules of the rich:

  1. Inherit it. Don’t buy it.
  2. Never spend your principal.
  3. Create assets, not liabilities.

Finding wealth and financial freedom is not an impossible dream for anyone in America. But, the fact is that if you really want freedom, then be prepared to live differently, be laughed at, and lose your pride for a little while.

Those that created true wealth in one generation knew that they weren’t living for their glory, but instead for the glory of their children.

Take some time this week and ask yourself how much of your principal do you keep and how much goes to keeping up.

Anna Domzalski is a staff writer for Financial Bin covering Budgeting, Wealth, Education, and Real Estate. Have a question for Anna? Email her at Anna@FinancialBin.com. (Image: Stuart Miles / FreeDigitalPhotos.net).
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